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COPYRIGHT 2003 All rights reserved. Reproduced by permission of The Condé Nast Publications Inc.
On a Friday afternoon last May, Mark Belnick, the general counsel of Tyco International, the giant industrial conglomerate, hurried into the Boca Raton office of the company's chairman and chief executive officer, L. Dennis Kozlowski. Belnick had with him a copy of a grand-jury subpoena that had just been served on the company, and that named Kozlowski personally.
Kozlowski stared at the text, which called for documents "reflecting all transactions between Tyco International . . . and Alexander Apsis or Alexander Apsis Fine Arts, LLC from 1999 to the present." The subpoena evidently concerned some paintings that Kozlowski had bought the previous year, after he had decided to become a serious art collector. They included a Monet and a Renoir. For the Monet, he had paid $3.95 million; for the Renoir, $5.5 million.
After studying the subpoena, Kozlowski picked up the phone and called Christine Berry, who worked for Fine Collections Management, in West Palm Beach, and was Kozlowski's art adviser. She had taken him to various galleries and negotiated the purchase of the paintings. According to Kozlowski, the following conversation ensued:
"Who did we buy the Monet from?" he asked.
Berry answered that the seller was Alexander Apsis, a dealer and former specialist for Sotheby's in London and New York. Without mentioning that he'd just received a subpoena, Kozlowski began questioning Berry about the purchase of the painting and the details of its delivery to his office at Tyco's headquarters, in Exeter, New Hampshire. "Do you mind if my lawyer gets on the phone?" Kozlowski asked.
Berry didn't answer immediately. By having the art shipped to New Hampshire, Kozlowski had avoided paying New York State's 8.25-per-cent sales tax--some $325,000 on the Monet alone. She told Kozlowski that she didn't want to talk to the lawyer, and needed to check her records and get back to him.
Three days later, on Monday, May 6th, Berry sent Kozlowski a fax:
I know you were inquiring about the shipment of the Monet to New Hampshire, so I dug up the paperwork associated with the delivery. Following this page is the bill of lading for the delivery. This is the only paperwork associated to these pieces. . . ., Best,, Christine
The accompanying bill of lading, dated January 2, 2002, on the letterhead of the Southern Trucking Company of Brooklyn, identifies the "consignee" as Dennis Kozlowski, 1 Tyco Park, Exeter, New Hampshire. The shipper's signature is Christine Berry's, and under "received by consignee" is the signature of an assistant at Tyco in New Hampshire. A list of five works was attached: the Monet, the Renoir, another Impressionist painting, an Old Master, and a 1920 British hunting scene.
In other words, the paperwork supported the notion that the art had been shipped and duly received outside of New York State. Neither Kozlowski nor Belnick felt it necessary to alarm Tyco's board by mentioning the subpoena.
But Berry had been mistaken. The bill of lading she sent Kozlowski was not the only document pertaining to the shipping. In a memo to Chris Hanson at Southern Trucking, dated December 21, 2001, she had written, in her own hand:
Happy Happy Chris! Here is a list of the five paintings to go to NH (wink, wink). . . . Please make cardboard boxes or use crates to match the piece count. Cheers & thanks.
In New Hampshire, as Berry must have known, the assistant had signed for the delivery of empty boxes. One painting, the Monet, had simply been moved up the street from Apsis's apartment, at 930 Fifth Avenue, to Kozlowski's, at 950 Fifth, where Berry had hung it in the living room.
Kozlowski had taken command of Tyco ten years earlier and transformed it from an obscure former government laboratory with $3 billion in revenues to an industrial conglomerate with $36 billion in revenues. The company's products range from security systems and industrial valves to medical equipment. Tyco's market capitalization was $1.5 billion when Kozlowski took charge; by 2001, it was $106 billion. Most of Kozlowski's compensation came in Tyco stock and options, and he was worth more than $400 million.
In the weeks after the subpoena was issued, other Tyco executives began to notice that Kozlowski, uncharacteristically, was rarely in the firm's New York office, and often couldn't be reached. He retained a leading criminal lawyer, Stephen Kaufman. He cancelled meetings and business trips. Then, on Friday, May 31st, Kaufman informed Kozlowski that he was about to be indicted for tax evasion. The following Monday, Tyco announced that the board had demanded and received Kozlowski's resignation as chairman and C.E.O.
In September, a second indictment charged Kozlowski with personally defrauding Tyco of more than $300 million. Belnick was indicted for falsifying records. As details emerged in the media, Kozlowski, more than any other executive who had prospered in the great bull market of the nineties, came to personify an epoch of corporate fraud, executive greed, and personal extravagance. It was a role that almost no one would have predicted for him.
Ifirst met Dennis Kozlowski this past December, at his lawyer's offices. I had spoken to him once before, in a brief telephone interview for a Talk of the Town item in February, 2000, about short sellers; he had insisted on personally taking my call and had answered all my questions with refreshing directness. Since then, I'd bought a thousand shares of Tyco stock, at a price of $40.59, and watched it rise in value ($63.21), and then plummet ($6.98). I'd become familiar with Kozlowski's business strategy, his dedication to shareholders, and his reputation for thrift and charm. Overweight and unprepossessing at the age of fifty-six, he certainly didn't look the part of one of America's most successful executives. Once, according to a Tyco executive, after a television appearance with Carleton Fiorina, the sleek, poised C.E.O. of Hewlett-Packard, Kozlowski asked, "What am I doing here? I'm just a dumb Polish guy who can barely talk."
His disinclination to put on airs was part of his appeal. He told the audience at a Goldman, Sachs conference in Manhattan in November, 2000, "I grew up in Newark, New Jersey, right across the river. I was probably the first generation in my family to go to college. . . . But the real basis for everything I learned about acquisitions I learned from my Polish grandmother."
At our first meeting, Kozlowski, wearing a suit and tie, initially seemed uncomfortable and somewhat restless. He is bald, with a fringe of light-reddish hair, and his face colors easily. Perhaps because he isn't polished or articulate, he doesn't appear to be especially self-aware. He seemed bewildered by the intensity of the public outcry against him.
But, as he described Tyco's business operations, he had a sure command of even the smallest details, and was relaxed and eager to discuss them. His defense of Tyco's growth strategy--that is, his practice of frequently acquiring competitors in Tyco's disparate business lines--is persuasive even today. He does not seem naive or unsophisticated about non-business subjects that interest him, such as wine and yachting, even though he is largely self-taught.
In the next few months, I interviewed Kozlowski on several occasions. Kaufman, his lawyer, was present, either in person or by phone. I agreed not to quote Kozlowski without Kaufman's authorization. Kozlowski spoke without inhibition about his former life--about his career, his youth in Newark, and his increasing forays over the years into the rarefied worlds of sailing, the art market, Fifth Avenue real estate, charitable boards, and Manhattan society.
Dennis Kozlowski grew up in a small apartment building in west-central Newark, a Polish and Italian Catholic working-class neighborhood that was largely demolished for urban-renewal projects in the late sixties. His father, Leo, was a member of the Polish American Republican Club of New Jersey and the local chapter of the Polish Falcons of America. Leo held a variety of jobs--professional boxer, reporter, and investigator for the New Jersey transit system. In the course of his work, he was shot twice; one bullet remained lodged in his neck for the rest of his life.
Kozlowski saw himself as strictly average, unlikely to achieve much beyond what his father or his uncles had. According to a recent BusinessWeek investigation, friends remember him as "an easygoing, even comical kid." At Newark's West Side High School, a history teacher praised him for having a logical mind, and encouraged him to join the debate team. Debating in front of school assemblies gave him confidence, and during his senior year, on the day when students and teachers reversed roles, Kozlowski was named the school principal. His history teacher made him feel that "I could be a leader, if I applied myself," Kozlowski says.
After graduating, in 1964, Kozlowski lived at home while working to put himself through college at Seton Hall University, in South Orange. During his freshman year, he played basketball there. ("Not very well," he has said. "But good enough to get a couple of hundred dollars off my tuition.") He worked at a car wash, waited tables, and played guitar in a five-man band called the Hi-Tones. He joined two fraternities, did a fair amount of drinking, majored in accounting, and graduated in 1968 with a B-minus average. In his spare time, he dreamed of sailing and flying, two interests he'd had since childhood, and spent afternoons on Barnegat Bay on a Sunfish.
Kozlowski's first job after college was as an auditor for the S.C.M. Corporation, formerly the Smith-Corona typewriter company. He began dating a company secretary named Angeles Suarez, originally from the Bronx, and they married a few years later.
While visiting an S.C.M. operation outside San Francisco in 1969, Kozlowski discovered the Napa Valley, and visited the Robert Mondavi winery. Though he says he had never seen anything but Manischewitz at home, he began to acquire a taste for fine wine. In 1974, he followed his boss at S.C.M. to Nashua Corporation, a New Hampshire office-equipment manufacturer, where he was made director of auditing. That year, Kozlowski won an auction conducted by Boston's public-television affiliate for a wine-study course in Cambridge, where he earned a "master mixologist" certificate. On business trips to Europe, Kozlowski began dropping in on...
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